Types of Savings and Investment
Pradhan Mantri Vaya Vandana Yojana
In this unit, we will discuss another retirement cum pension scheme announced by the Indian Government, i.e, 'Pradhan Mantri Vaya Vandana Yojana' (PMVVY). It is a social security/pension scheme for senior citizens. The scheme guarantees an interest rate of 8% payable monthly for a period of 10 years. It is like a fixed deposit held with LIC. Minimum amount to be invested is ₹150000. Maximum amount that can be invested is ₹1500000 subject to prescribed mode of holding. Premature exit is allowed in case of critical illness wherein 98% of the deposit will be refunded. One can also avail a loan up to 75% of the deposit made after completion of 3 policy years. On completion of the policy term, the principal would also be returned along with the last instalment.
How to Apply for Pradhan Mantri Vaya Vandana Yojana (PMVVY)?
The following documents are required to apply for Pradhan Mantri Vaya Vandana Yojana:
- Duly filled Application form.
- Identity proof like PAN card, Passport.
- Address proof such as Telephone bill, Aadhaar card.
- Age Proof Document like Passport, Senior Citizen Card, Birth certificate issued by Corporation or registrar of births and death, Voter ID card, PAN card etc.
This scheme can be bought online from the Life Insurance Corporation of India (LIC) website or offline by visiting any LIC office.
Interest Rate Mechanism
For Pradhan Mantri Vaya Vandana Yojana, the interest rate is 8% payable monthly.
For example, if one makes a one-time investment of ₹150000, the monthly pension payout for 10 years would be ₹1000.
The deposits made in this scheme are exempt from income tax under section 80C of Income Tax Act, 1961. But, there is no tax exemption on the interest received.
Risk associated with Pradhan Mantri Vaya Vandana Yojana
There is no risk involved as this scheme is backed by the Government of India. Principal and Interest are guaranteed. If inflation turns out to be higher than the nominal interest rate of the investment, there would be no real returns available. Hence, it is not inflation protected.